Getty Images Inc. Upgraded To 'B-' From 'CCC' On Proposed Refinancing; Rating Off Watch; New Debt Rated; Outlook Stable

  • U.S.-based global digital media company Getty Images Inc. plans to refinance its capital structure with a $1.5 billion first-lien credit facility, $400 million in unsecured debt, and $600 million in preferred and common equity from third party investor, Koch Development LLC and Getty's parent company Griffey Global Holdings Inc. The proposed transaction will improve Getty's liquidity and debt maturity profile.
  • We are raising our issuer credit rating on Getty to 'B-' from 'CCC' and removing it from CreditWatch with developing implications.
  • At the same time, we are assigning our 'B-' issue-level rating and '3' recovery rating to the proposed first-lien debt. The ratings on the company's existing debt issues remain unchanged. We expect to withdraw our ratings on the company's existing debt following the close of the proposed transaction.
  • The stable outlook reflects our expectation that operating performance will continue to improve on management's turnaround initiatives, such that various one-time and restructuring costs decline below $15 million and reported free operating cash flow (FOCF) improve to above $50 million and adjusted leverage declines to about 8x over the next 12 months.
NEW YORK (S&P Global Ratings) Feb. 1, 2019--S&P Global Ratings today took the 
rating actions listed above. The upgrade reflects our expectation that Getty's 
liquidity improves following the close of the proposed refinancing 
transaction. The company plans to use proceeds from its proposed first-lien 
debt issuance, unsecured debt, common and pay-in-kind (PIK) preferred equity, 
along with cash on hand to refinance upcoming 2019 debt maturities. The 
proposed transaction will extend maturities past five years and improve the 
company's near term liquidity position. We expect Getty will have sufficient 
liquidity, including an undrawn revolver at transaction close, and over $120 
million of internally generated cash flows to meet debt obligations and 
business investment needs over the next 12-18 months. 

Pro forma for the transaction, adjusted debt to EBITDA will remain high at 
mid-9x at fiscal year-end 2018. We include the preferred stock as debt in our 
financial ratios, and assume the company will elect to utilize the PIK 
interest feature over the coming years. While this provides the company with 
increased financial flexibility to make investments or to repay debt, it slows 
deleveraging because of the relatively high PIK interest rate (8% plus 
five-year U.S. Treasury) on the preferred stock. We expect the company's 
leverage will decline to around 8x in 2019 and further improve to 7.5x in 2020 
primarily due to reduction in one-time and restructuring costs and to some 
degree from voluntary debt repayment with cash flows.

Although organic cash flow generation will improve, reduced restructuring and 
one-time costs is critical to generating sufficient free cash flow for 
business reinvestment and deleveraging, in our view. Moreover, the forced 
redemption provisions under the company's preferred stock requires Getty to 
deleverage over time to allow for the eventual refinancing of the instrument. 
Inability to meaningfully deleverage over time would limit the company's 
ability to eventually refinance its proposed secured and unsecured debt, due 
to the overhang of the eventual preferred redemption.

The stable outlook reflects our expectation that operating performance will 
continue to improve on management's turnaround initiatives, such that various 
one-time and restructuring costs decline below $15 million and reported free 
operating cash flow improves to above $50 million, adjusted debt leverage 
declines to about 8x over the next 12 months. 

We could lower our rating if Getty's operating turnaround stalls and 
profitability weakens due to, for example, inability to realize expected cost 
savings, greater price-based competition, or insufficient demand for its 
subscription offerings. This could lead to annual reported FOCF falling below 
$40 million, weaker liquidity, and credit metrics materially deviating from 
our expectations, which would cause us to view the capital structure as 
unsustainable.

An upgrade is unlikely over the next 12 months given forecast leverage, 
ongoing business transformation, and management execution risks. However, we 
could raise the rating if Getty successfully grows revenues and EBITDA 
margins, lowers leverage towards 6x and is in a position to refinance its 
increasing PIK debt.